Cash Flow Forecasts

• What is a cash flow forecast?

  A prediction of cash movement over time
• Why is a cash flow forecast useful for a business?

  It identifies timing of cash shortages and surpluses
• How does a cash flow forecast enhance the planning process?

  It guides the business towards appropriate actions
• What problem can a cash flow forecast help to avoid?

  Being forced out of business due to cash issues
• How does a cash flow forecast support attempts to raise finance?

  It shows potential investors the cash position
• What does a cash flow forecast assist in determining?

  The liability of a new business venture
• How do you calculate Net Cash Flow?

  Net Cash Flow = Total Receipts - Total Payments
• What is the Net Cash Flow if Total Receipts are $2500$ and Total Payments are $16920$?


  $-14420$
• How do you calculate the Closing Balance?

  Closing Balance = Opening Balance +/- Net Cash Flow
• What is the Closing Balance if the Opening Balance is $-2120$ and Net Cash Flow is $-14420$?


  $-2465$
• What are some ways to improve cash flow position?

  • Improve revenue through increased sales
  • Increase prices based on price sensitivity
  • Reduce wage bill by making redundancies
  • Reduce drawings for personal expenses
  • Cut costs by finding efficient suppliers
  • Reduce use of outside contractors
  • Chase bad debtors for cash
  • Increase promotions for sales
  • Cut advertising budget
  • Find new insurer for better rates
  • Invite new shareholders for investment
  • Sale of assets for cash
  • Re-negotiate loan terms
  • Debt factoring on invoices
  • Ask bank to increase overdraft limit
  • Extend credit terms with suppliers
• Why might improving revenue through increased sales be ineffective?

  If economic conditions are against the business
• What is a potential risk of increasing prices?

  It may cause a significant decrease in revenue
• What could happen if a business reduces its wage bill by making redundancies?

  It could lead to strikes and demotivation
• What should be considered when reducing drawings?

  Whether personal living expenses can be met
• What is a potential downside of cutting costs?

  It may compromise the quality of products
• What is a consideration when reducing the use of outside contractors?

  Whether staff have time to take over tasks
• What is a risk of chasing up bad debtors?

  It may lead to cash problems for customers
• What is a potential outcome of increasing promotions?

  It may lead to increased sales or no impact
• What could be a consequence of cutting the advertising budget?

  It could negatively impact sales numbers
• What should be considered when inviting new shareholders?

  Possible dilution of control in the business
• What is a risk of selling assets for cash?

  Loss of benefits associated with the assets
• What is a potential downside of re-negotiating loan terms?

  It may require paying more in the future
• What is a consequence of debt factoring on future invoices?

  You will not get full invoice value
• What is a consideration when asking the bank to increase the overdraft limit?

  It may incur extra interest costs
• What might extending credit terms with suppliers cost?

  Loss of early payment discounts
• Who are the stakeholders interested in business accounts?

  • Directors: Measure past planning success
  • Workers: Job security and wage increases
  • Managers: Business success and bonuses
  • Shareholders/Investors: Value of shares and dividends
  • Customers: Business survival and pricing
  • Suppliers: Ability to pay trade credit
  • Banks: Ability to repay loans/overdrafts
  • Government: Tax collection and profit assessment
  • Competitors: Comparisons for planning strategies
• Why are directors interested in business accounts?

  To measure past planning success and aid decisions
• What do workers want to know from business accounts?

  If the business is successful for job security
• Why are managers interested in business accounts?

  To assess business success and bonuses eligibility
• What do shareholders/investors look for in business accounts?

  Business success affecting share value and dividends
• Why might customers be interested in business accounts?

  To determine if the business is worth contracting
• What do suppliers want to know from business accounts?

  If the business can pay its trade credit
• Why are banks interested in business accounts?

  To assess if loans/overdrafts will be repaid
• What does the government want to know from business accounts?

  How much tax will be collected from the business
• Why might competitors be interested in business accounts?

  To make comparisons for planning strategies